What are Key Differences Between SIMPLE IRA and 401k?

When you run a small business, you have many things to think about every day. For instance, you may have to consider switching suppliers, expanding your operations, branching into other markets, and a whole host of other things.

But one of the biggest considerations you have to make as a business owner is what type of retirement plan you will offer for your employees.

Two of the most popular retirement plan options available to small businesses are the 401k plan and the SIMPLE IRA.

What is a SIMPLE IRA?

A SIMPLE IRA, also known as a Savings Incentive Match Plan for Employees Individual Retirement Account, is one retirement plan option available to companies.

This type of plan offers a range of benefits for both employers and employees such as:

  • A contribution limit of $14,000 for those under 49 and $16,500 for those over 50.
  • A commitment to serving very small businesses, with a cap of 100 employees allowed per business. Once a business exceeds this number of employees, they are no longer eligible for this type of plan.
  • Required matching of contributions for all plan members.
  • Few requirements in terms of compliance testing.
  • The plan is relatively inexpensive in terms of maintenance and setup as compared to a 401k plan.

If these benefits sound like the right fit for your company, you may consider starting a SIMPLE IRA. However, you should also be aware of the benefits inherent in a 401k plan before making your decision.

What is a 401k? 

A 401k plan is a different type of retirement account than an IRA. Much like the SIMPLE IRA, the 401k allows for numerous benefits, depending on the unique needs of the company in question:

  • For plan contributors who are age 49 or younger, the contribution limit is $20,500.
  • For plan contributors who are age 50 or older, the contribution limit is $27,000.
  • No matter the size of your company, from a single member business, to a multi-thousand employee enterprise, any company can start and maintain a 401k.
  • Employers have flexibility in deciding whether they will match employee contributions and how much they will match.
  • Options for both Roth and Traditional plans are available. This means that contributions are taxed prior to being deposited, or after being withdrawn in retirement respectively. Having the choice of which type of taxed contribution is made is a major benefit with a 401k.
  • Loan options are available, when needed.


The choice is yours when it comes to whether or not you should start a SIMPLE IRA or a 401k for your business. Each of the plans offers numerous benefits and can offer great opportunities for employers and employees alike.

According to the plan providers at Ubiquity, some of the most important things to consider when deciding on which retirement plan to start for your company are:

  • Do you plan to grow beyond 100 employees?
  • Is it important that your plans be flexible?
  • How do you feel about matching requirements within your company’s retirement plan?

From there, you can pick the best plan to suit your business’s needs.

Comments are closed.